Credit Card Update November 24
AMERICAN EXPRESS: OPERATING IN AN UNCERTAIN ENVIRONMENT
American Express is operating amid uncertainty stemming from the slow pace of economic recovery. There’s “still uncertainty out there on the economy,” said Ed Gilligan, AmEx’s vice chairman, in a Web cast of the Bank of America Merrill Lynch banking and financial services conference. “Consumers are saving more and borrowing less. Small businesses are cautious.” The challenge for American Express is the growth of its book of card loans. To fight losses from card loans, AmEx and its peers have been scaling back on credit in the last several months and getting tougher about lending standards. Now, with the worst likely behind them, they have to balance increasing lending to spur revenue and not loosening standards. AmEx is also locked in a tussle with the Department of Justice, which slapped AmEx with a civil antitrust suit last month after the company refused to join an industrywide agreement to allow merchants to steer customers toward cheaper forms of plastic. “Some battles are worth fighting,” said Gilligan. “We believe we have a very strong legal case.”
Story by By Aparajita Saha-Bubna for Dow Jones Newswires
TARGET RESULTS IMPROVE WITH CREDIT CARD
Target Corp. reported a 22.6 percent increase in third-quarter net income, helped by improvements in its credit card business and expansion into food.Target’s Chief Financial Officer Doug Scovanner said that revenue at stores opened at least a year are up in the mid single-digit range for the first two weeks of the month. “Sales penetration in our cards has averaged about 1.3 percentage points above last year, compared with the 0.4 percentage point decline we were running year to date through the second week of October,” said Scovanner. “Based on our experience that nearly half of incremental card penetration represents incremental sales, we continue to estimate that this program will drive about a percentage point of same-store sales in the fourth quarter and between 1 and 2 full points in 2011. In Kansas City, you’ll recall that our sales lift was heavily concentrated among a subset of the 10 percent of Target guests who ring up nearly half of our sales. So far it appears that a similar concentration is taking shape
HOLIDAY SHOPPERS: BEWARE OF STORE CREDIT CARDS
Store credit cards are rarely a good idea for consumers. They encourage impulse shopping and also charge some of the highest interest rates of any credit cards on the market. New York Representative Anthony Weiner conducted a study on these store credit cards, and has now introduced legislation to increase point of purchase disclosure of interest rates, grace periods, and annual fees for store credit cards. Weiner hopes this legislation will give consumers the information they need to make informed decisions when signing up for new credit cards. Weiner’s recent study documents the exceedingly high interest rates on retail store credit cards, some with interest rates as high as 28.99%. By matter of comparison, the average credit card interest rate last week was 13.81%.
EXPANDED RETURN PERIOD FOR THOSE WITH BUYER’S REGRET
American Express recently announced a new service that gives shoppers 180 days to return eligible purchased goods. It also covers certain return shipping and restocking fees. The company isn’t doing this out of the goodness of its heart, of course. It will cost you $49.99 a year, and shoppers with any type of charge, credit or debit card (not just American Express) can sign up. The offering is called Premium Return Protection. Still, the program can be a bit confusing to understand, involves many steps for the consumer and is not without other caveats and hassles. Here’s how it works. Customers would enroll in the program online or by phone. Then, to return an item through the service, the return period of the retailer where the item was purchased must have ended. Assuming then that 180 days haven’t passed since the original purchase date, customers would first send a photocopy of their receipt along with their card statement to American Express, which would then double-check that the merchant’s return policy was no longer in effect by calling the merchant or researching the return policy directly, according to an American Express spokeswoman. Once American Express confirmed that the retailer’s return period was over, it would ask the customer to send the item directly to American Express, which would then check the condition of the item. Then, finally, American Express would send the customer a refund, in the form of an American Express gift card, that would include the shipping fees associated with returning the item to American Express.
Story by Jennifer Saranow Schultz for The New York Times
AMEX AIMS TO HANDLE MORE TRANSACTIONS WITH CHINA UNIONPAY DEAL
American Express Co., the world’s biggest credit-card issuer by purchases, said an accord with China UnionPay Data Co. may help AmEx process more transactions on its global network. U.S. payment networks shut out of China’s card-processing market are still looking for ways to build ties with Shanghai- based UnionPay, a government-sanctioned monopoly. MasterCard has said it signed a similar deal with UnionPay that may help boost revenue for both firms. Discover Financial Services, based in Riverwoods, Illinois, is the only payments network that processes UnionPay card transactions in the U.S. According to MasterCard, China will overtake the U.S. as the largest market for credit cards by 2020 with about 900 million cards in circulation. Total cards likely will increase 11 percent a year as transaction value climbs 14 percent annually until 2025.
Story by Peter Eichenbaum for Bloomberg
THE MORE CONVENIENT GIFT CARD
It’s easy to forget to bring a gift card when you go shopping, and it’s simple, too, to lose track of gift cards received during holidays past. A new iPhone application from Wildcard Network aims to make gift cards more convenient to use. The free app helps iPhone users manage gift cards from about 30 retailers. After downloading the application, those who want to give gift cards as gifts would buy the cards for themselves within the application using their credit card and then regift the cards to the recipients’ e-mail addresses or Wildcard Network accounts. Gift card recipients, meanwhile, can upload their gift cards to the application by entering in the card numbers and other information. Once a card is uploaded, its bar code and number can be shown to participating retailers. The application also keeps track of the balances left on the gift cards in its system, and the terms and conditions for the cards can also be viewed within the application. Wildcard Network is not the only player in this area. Another company, Tango Card, recently announced a similar offering.
Story by Jennifer Saranow Schultz for The New York Times